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September 29, 2013

MoneyBlock Picks Up Where Schwab’s BrokersXpress Left Off

The surprise close of the options BD last year meant big opportunity for a crosstown rival

The announcement in May 2012 that owner Charles Schwab would shutter the broker-dealer was a surprise to industry watchers. Part of the OptionsXpress acquisition made by the custodial and clearing giant for $1 billion in September 2011, BrokersXpress was more difficult to integrate than its options clearing counterpart — at least that was the reason given.

The move, however, opened an opportunity for a number of other firms, one in particular being fellow Chicago-based firm TradingBlock. It naturally looked to brokersXpress alumni to help build out a similar style broker-dealer, and a number of senior staff made the leap. Gary Martino was one; he's a nine-year veteran of BrokersXpress with 30 years racked up in the industry overall.

He picked up where BrokersXpress left off, helping TradingBlock form its MoneyBlock spinoff as vice president of sales and business development, with a focus on options in the independent rep space.

“Initially there was a period of time where they were working on how they were going to integrate brokersXpress into the Schwab Advisor Services umbrella,” he began by way framing the story behind the purchase and subsequent sale. "They would offer services for RIAs as well as having our own broker-dealer to service the independent reps in their own corporate RIAs, or their IARs.”

Ultimately, Schwab, for whatever reason, decided to wind down the BrokerXpress model, which Martino called, “sort of a shock to folks, considering it was a profitable company and clean from a regulatory perspective, which is why most other firms typically shut down.”

In doing so, Schwab gave BrokersXpress-affiliated reps and advisors 90 days to move their books of business.

“Although 90 days is a decent amount of time, it isn’t necessarily a large amount of time for a broker or advisor to service their clients and go through the transition process and move those accounts,” he noted. “I was asked to stay and help those reps and advisors transition their business and find firms that would be a good fit.”

TradingBlock, it turned out, was one such firm. The small broker-dealer primarily serviced self-directed accounts, and had some of the same tools and features that were attractive to the reps and advisors at BrokersXpress.

“It’s what I refer to as the holy trinity; features such as cost structure, options capability and technology," Martino said. “In the RIA space there are a lot of firms with similar capabilities, but in the independent rep community there wasn’t really a lot out there.”

Being in Chicago, TradingBlock knew about BrokersXpress, and always “sort of envied” the model. When they were approached by BrokersXpress reps about moving their business, the powers that be decided it would be a great opportunity to enter the independent space.

“The TradingBlock team reached out to us and asked us if we would be interested in helping them rebuild the model, which ultimately became MoneyBlock.”

The rest, as they say, is history. However, he emphasizes it’s not a carbon copy of the former firm; there are differences.

“Primarily it’s the culture of the company,” Martino explained. “One of the challenges we always had with BrokersXpress was the allocation of resources between it and the OptionsXpress side for development. It was always a tug-of-war. When TradingBlock decided to go in that direction, they put all of their resources into building up that MoneyBlock model. All of the development, all of our programmers, all of the resources we provide are geared towards the independent rep and advisor community.

They still have a self-directed part of the company, he hedged, but what is done at MoneyBlock “really trickles down to the TradingBlock model. That’s where our emphasis is that still benefits both areas of the company.”

He said he still enjoyed a good relationship with Barry Metzger, the high-profile former CEO of BrokersXpress, now COO of OptionsXpress.

“Barry came in 2006 and we always had a great relationship. I’m based in California and didn’t want to move to Chicago. As the company grew, they wanted a CEO presence is Chicago. They approached me, but I didn’t want to go there, so they brought in Barry. I always had a good relationship with Barry because I didn’t feel threatened.”

He came through 2008 at BrokersXpress, when options were lumped in (rightly or wrongly) with what Warren Buffett famously called “financial weapons of mass destruction.”

“One of the things that I pride myself on is being upfront and honest with people about what we can and can’t do. We have certain capabilities that we provide to reps and advisors and others we don’t. So we always went through the good and the bad with reps and advisors. That way when they joined us, we knew they were joining for the right reasons.”

The resulting regulation (often preceded by the word “over”) is something about which Martino didn’t mince words, noting it’s “killing” the space.

“It’s a tough industry from a regulatory perspective. I don’t know of another industry that has as much oversight as the financial services community, even doctors and lawyers. When I was on the FINRA committee, one of my big pet peeves was customer complaints. I would watch T.V. and see these commercials for lawyers that said “if your broker lost you money, call us and we’ll get your money back.”

Fortunately, he added, brokersXpress (and now MoneyBlock) are companies that were going to do “what we think is right whether it costs money or not. There are attorneys out there, and we live in a litigious community, they just want to file a complaint no matter how frivolous it is and hope the person will settle and that just kills me. I guess that’s just a necessary evil and we just have to work within those boundaries.”

Martino concluded by noting the educational outreach in which MoneyBlock participates, specifically with the Options Industry Council and its hyperactive representative, Eric Cott.

“Yes, I actually know Eric well, and our firm is co-sponsoring a web seminar series with the CBOE. We’ve already done four or five web seminar sessions on how to use different options strategies. It’s not really about MoneyBlock, per se, it’s more about options education overall. The more we can educate on the use of options in different market environment, that’s going to play to our strength overall.”